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Transocean Ltd. Reports Second Quarter 2010 Results

August 4, 2010

ZUG, SWITZERLAND, Aug 04, 2010 (MARKETWIRE via COMTEX) -- Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported net income attributable to controlling interest for the three months ended June 30, 2010 of $715 million, or $2.22 per diluted share, on revenues of $2.505 billion. The results compare to net income attributable to controlling interest of $806 million, or $2.49 per diluted share, on revenues of $2.882 billion, for the three months ended June 30, 2009.

Second quarter 2010 results included increased expenses associated with the Macondo well incident of $82 million, or $69 million after tax at our Annual Effective Tax Rate. These expenses include insurance deductibles, legal costs, increased insurance premiums, internal investigation costs and professional fees.

In addition, second quarter 2010 results were favorably impacted by $249 million, after tax, as follows:

  • A $267 million gain resulting from insurance recoveries associated with the loss of Deepwater Horizon,
  • Partially offset by $18 million of expenses primarily relating to litigation matters not associated with the Macondo well incident.

Second quarter 2009 results were adversely impacted by certain net charges, after tax, totaling $96 million, or $0.30 per diluted share, including $67 million primarily related to write-downs of assets held for sale and a $29 million net loss primarily related to discrete tax items, the retirement of debt and the sale of an interest in a joint venture.

Operations Quarterly Review

Revenues for the three months ended June 30, 2010 decreased to $2.505 billion compared to $2.602 billion during the three months ended March 31, 2010. The $97 million decrease was primarily due to contract drilling revenue reductions, including $80 million resulting from the stacking of rigs, $69 million from rigs operating on contracts at lower dayrates, $61 million from increased rig time in shipyards and mobilizations and $37 million associated with the loss of Deepwater Horizon. The decrease was partially offset by an $80 million increase in drilling management services revenues, a $54 million increase in contract drilling revenue from newly-constructed ultra-deepwater rigs commencing or continuing operations in the second quarter and $16 million of other minor variances.

Operating and maintenance expenses totaled $1.358 billion for the second quarter 2010, up approximately 14 percent compared to $1.196 billion for the prior quarter. The $162 million quarter-to-quarter increase in operating and maintenance costs occurred as a result of $82 million of increased costs from insurance deductibles and legal costs associated with the Macondo well incident, a $65 million increase in drilling management services costs and $17 million of additional operating costs related to increased activity associated with newly-constructed ultra-deepwater rigs.

General and administrative expenses were $58 million for the second quarter 2010, compared to $63 million in the first quarter 2010. The $5 million decrease was primarily due to higher share-based compensation expenses in the first quarter.

Liquidity and Interest Expense

Interest expense, net of amounts capitalized in the second quarter 2010, totaled $141 million, compared to $132 million in the prior quarter. The increase was primarily due to reduced capitalized interest related to the commencement of operations of newly-constructed ultra-deepwater drillships in the first and second quarters. As of June 30, 2010, total debt was $11.426 billion, compared to $11.439 billion as of March 31, 2010, a decrease of $13 million.

Cash flow from operating activities totaled $1.269 billion for the second quarter 2010, up from $1.172 billion for the first quarter 2010.

As of June 30, 2010, the company had cash and cash equivalents of $2.888 billion, compared to $1.586 billion at March 31, 2010. The increase is principally due to operating cash flow and the receipt of $560 million in insurance proceeds for the loss of Deepwater Horizon.

Effective Tax Rate

Transocean's reported Effective Tax Rate(1) for the second quarter 2010 was 12.0 percent and included certain discrete items consisting primarily of the gain resulting from the insurance recoveries on the loss of Deepwater Horizon and changes in prior years tax estimates. Excluding these discrete items the Annual Effective Tax Rate(2) for the second quarter was 16.3 percent.

Update on Distribution Through Par Value Reduction

In May 2010, at our Annual General Meeting, our shareholders approved a cash distribution in the form of a par value reduction in the aggregate amount of CHF 3.44 per issued share, equal to approximately $3.19 using an exchange rate of USD 1.00 to CHF 1.08 as of the close of trading on June 30, 2010. We expect the cash distribution to be calculated and paid in four quarterly installments. Under Swiss law, upon satisfaction of all legal requirements, we must submit an application to the commercial register in the Canton of Zug to register the applicable par value reduction. We have submitted to the commercial register of the Canton of Zug our application for registration of the initial installment. The cantonal commercial register is currently reviewing our application, and although we believe that all registration requirements have been met, the Swiss authorities have indicated to us that the review process will take longer than customary in light of lawsuits filed in the U.S. and served on the company in Switzerland. They have indicated that they will seek guidance from the Swiss Federal Office of the Commercial Register on whether the requirements for the registration of the first installment have been met. Given the expected extended review of our application by the competent Swiss authorities, the payment of the first installment will be delayed. If the Swiss authorities disagree with our view that all registration requirements have been met, our ability to pay the distribution installments could be further delayed or restricted indefinitely. A delay of the first installment will likely also result in a delay of the remaining three installments, which were expected to be paid in October 2010, January 2011 and April 2011, subject to the satisfaction of the applicable Swiss legal requirements.

Update on Discussions with the U.S. Department of Justice

On June 28, 2010, we received a letter from the U.S. Department of Justice (DOJ) asking us to meet with them to discuss our financial responsibilities in connection with the Macondo well incident and requesting that we provide them certain financial and organizational information. The letter also requested that we provide the DOJ advance notice of certain corporate actions involving the transfer of cash or other assets outside the ordinary course of business. After preliminary discussions with the DOJ, we have voluntarily agreed to provide them with 30 days notice prior to repurchasing any additional shares under our share repurchase program and prior to making substantial cash payments out of our U.S. entities, other than in the ordinary course of business. We expect to engage in further discussions with the DOJ in the future.

Update on Macondo Well Incident

We have filed a Quarterly Report on Form 10-Q with the United States Securities and Exchange Commission, including the relevant drilling contract between subsidiaries of Transocean and BP as an exhibit. The Form 10-Q includes updated information on the Macondo well incident. To view the Form 10-Q filing, please use the following link: http://www.deepwater.com/fw/main/SEC-Filings-57.html.

Forward-Looking Statements

Statements regarding the distribution to shareholders, including the timing and amount of the distribution and review by the Swiss authorities, share repurchases and discussions with the DOJ, as well as any other statements that are not historical facts, are forward-looking statements that involve certain risks, uncertainties and assumptions. These include but are not limited to compliance with legal requirements, operating hazards and delays, actions by governmental and regulatory authorities, customers and other third parties, the future price of oil and gas, the actual revenues earned and other factors detailed in the company's most recent Form 10-K, Form 10-Q and other filings with the Securities and Exchange Commission (\"SEC\"), which are available free of charge on the SEC's website at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. Additional information regarding the distribution may be found in the company's most recent Form 10-Q, proxy statement and other filings made with the SEC.

Conference Call Information

Transocean will conduct a teleconference call at 10:00 a.m. EDT, 4:00 p.m. CEST, on August 5, 2010. To participate, dial +1 719-325-4929 and refer to confirmation code 1148497 approximately five to 10 minutes prior to the scheduled start time of the call.

In addition, the conference call will be simultaneously broadcast over the Internet in a listen-only mode and can be accessed by logging onto Transocean's website at www.deepwater.com and selecting \"Investor Relations.\" A file containing four charts to be discussed during the conference call, titled \"2Q10 Charts,\" has been posted to Transocean's website and can be found by selecting \"Investor Relations/Quarterly Toolkit.\" The conference call may also be accessed via the Internet at www.CompanyBoardroom.com by typing in Transocean's New York Stock Exchange trading symbol, \"RIG.\"

A telephonic replay of the conference call should be available after 1:00 p.m. EDT, 7:00 p.m. CEST, on August 5, and can be accessed by dialing +1 719-457-0820 or +1 888-203-1112 and referring to the passcode 1148497. Also, a replay will be available through the Internet and can be accessed by visiting either of the above-referenced Worldwide Web addresses.

Transocean is the world's largest offshore drilling contractor and the leading provider of drilling management services worldwide. With a fleet of 139 mobile offshore drilling units plus three ultra-deepwater newbuild drillships under construction, Transocean's fleet is considered one of the most modern and versatile in the world due to its emphasis on technically demanding segments of the offshore drilling business. Transocean owns or operates a contract drilling fleet of 45 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh-Environment semisubmersibles and drillships), 26 Midwater Floaters, 10 High-Specification Jackups, 55 Standard Jackups and other assets utilized in the support of offshore drilling activities worldwide.

(1) Effective Tax Rate is defined as income tax expense divided by income before income taxes. See the accompanying schedule entitled \"Supplemental Effective Tax Rate Analysis.\"

(2) Annual Effective Tax Rate is defined as income tax expense excluding various discrete items (such as changes in estimates and tax on items excluded from income before income tax expense) divided by income before income tax expense excluding gains on sales and similar items pursuant to the accounting standards for income taxes and estimating the annual effective tax rate. See the accompanying schedule entitled \"Supplemental Effective Tax Rate Analysis.\"

                     TRANSOCEAN LTD. AND SUBSIDIARIES             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                  (In millions, except per share data)                              (Unaudited)                                 Three months ended     Six months ended                                      June 30,              June 30,                                --------------------  --------------------                                  2010       2009       2010       2009                                ---------  ---------  ---------  ---------Operating revenues    Contract drilling revenues  $   2,290  $   2,625  $   4,731  $   5,459    Contract drilling     intangible revenues               29         75         62        179    Other revenues                    186        182        314        362                                ---------  ---------  ---------  ---------                                    2,505      2,882      5,107      6,000                                ---------  ---------  ---------  ---------Costs and expenses    Operating and maintenance       1,358      1,277      2,554      2,448    Depreciation, depletion and     amortization                     400        360        801        715    General and administrative         58         53        121        109                                ---------  ---------  ---------  ---------                                    1,816      1,690      3,476      3,272                                ---------  ---------  ---------  ---------Loss on impairment                     --        (67)        (2)      (288)Gain (loss) on disposal of assets, net                          268         (4)       254         --                                ---------  ---------  ---------  ---------Operating income                      957      1,121      1,883      2,440                                ---------  ---------  ---------  ---------Other income (expense), net    Interest income                     5          1         10          2    Interest expense, net of     amounts capitalized             (141)      (114)      (273)      (250)    Gain (loss) on retirement     of debt                           --         (8)         2        (10)    Other, net                         (3)        (8)        10         --                                ---------  ---------  ---------  ---------                                     (139)      (129)      (251)      (258)                                ---------  ---------  ---------  ---------Income before income tax expense                              818        992      1,632      2,182Income tax expense                     98        184        227        435                                ---------  ---------  ---------  ---------Net income                            720        808      1,405      1,747Net income (loss) attributable to noncontrolling interest             5          2         13         (1)                                ---------  ---------  ---------  ---------Net income attributable to controlling interest           $     715  $     806  $   1,392  $   1,748                                =========  =========  =========  =========Earnings per share    Basic                       $    2.23  $    2.50  $    4.32  $    5.43    Diluted                     $    2.22  $    2.49  $    4.31  $    5.42Weighted average shares outstanding    Basic                             319        320        320        320    Diluted                           320        321        321        321                        TRANSOCEAN LTD. AND SUBSIDIARIES                     CONDENSED CONSOLIDATED BALANCE SHEETS                        (In millions, except share data)                                                  June 30,    December 31,                                                    2010          2009                                                ------------  ------------                                                (Unaudited)AssetsCash and cash equivalents                       $      2,888  $      1,130Accounts receivable, net of allowance for doubtful accounts of $41 and $65 at June 30, 2010 and December 31, 2009, respectively              2,254         2,385Materials and supplies, net of allowance for Obsolescence of $66 at June 30, 2010 and December 31, 2009                                       467           462Deferred income taxes, net                               121           104Assets held for sale                                      --           186Other current assets                                     184           209                                                ------------  ------------        Total current assets                           5,914         4,476                                                ------------  ------------Property and equipment                                27,377        27,383Property and equipment of consolidated variable interest entities                                     2,179         1,968Less accumulated depreciation                          7,034         6,333                                                ------------  ------------     Property and equipment, net                      22,522        23,018                                                ------------  ------------Goodwill                                               8,132         8,134Other assets                                             984           808                                                ------------  ------------        Total assets                            $     37,552  $     36,436                                                ============  ============Liabilities and equityAccounts payable                                $        968  $        780Accrued income taxes                                     154           240Debt due within one year                               1,580         1,568Debt of consolidated variable interest entities due within one year                                      82           300Other current liabilities                              1,884           730                                                ------------  ------------        Total current liabilities                      4,668         3,618                                                ------------  ------------Long-term debt                                         8,862         8,966Long-term debt of consolidated variable interest entities                                       902           883Deferred income taxes, net                               710           726Other long-term liabilities                            1,683         1,684                                                ------------  ------------        Total long-term liabilities                   12,157        12,259                                                ------------  ------------Commitments and contingenciesShares, CHF 15.00 par value, 502,852,947 authorized, 167,617,649 conditionally authorized, 335,235,298 issued at June 30, 2010 and December 31, 2009; 318,916,207 and 321,223,882 outstanding at June 30, 2010 and December 31, 2009, respectively                       4,479         4,472Additional paid-in capital                             6,421         7,407Treasury shares, at cost, 2,863,267 and none held at June 30, 2010 and December 31, 2009, respectively                                           (240)           --Retained earnings                                     10,400         9,008Accumulated other comprehensive loss                    (336)         (335)                                                ------------  ------------     Total controlling interest shareholders'      equity                                          20,724        20,552                                                ------------  ------------     Noncontrolling interest                               3             7                                                ------------  ------------        Total equity                                  20,727        20,559                                                ------------  ------------        Total liabilities and equity            $     37,552  $     36,436                                                ============  ============                       TRANSOCEAN LTD. AND SUBSIDIARIES               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                      (In millions, except share data)                                          Three months    Six months ended                                         ended June 30,       June 30,                                        ----------------  ----------------                                          2010     2009     2010     2009                                        -------  -------  -------  -------Cash flows from operating activitiesNet income                              $   720  $   808  $ 1,405  $ 1,747Adjustments to reconcile net income to net cash provided by operating activities     Amortization of drilling      contract intangibles                  (29)     (75)     (62)    (179)     Depreciation, depletion and      amortization                          400      360      801      715     Share-based compensation expense        18       24       53       43     Excess tax benefit from      share-based compensation plans         (1)      --       (1)      (1)     (Gain) loss on disposal of assets,      net                                  (268)       4     (254)      --     Loss on impairment                      --       67        2      288     (Gain) loss on retirement of debt       --        8       (2)      10     Amortization of debt issue costs,      discounts and premiums, net            51       57      100      109     Deferred income taxes                  (12)      20      (34)      26     Other, net                              (6)      14       (1)      23     Deferred revenue, net                    7       49      158       43     Deferred expenses, net                 (23)     (37)     (37)     (35)     Changes in operating assets and      liabilities                           412      277      313      228                                        -------  -------  -------  -------Net cash provided by operating activities                               1,269    1,576    2,441    3,017                                        -------  -------  -------  -------Cash flows from investing activities    Capital expenditures                   (300)    (947)    (679)  (1,655)    Proceeds from disposal of assets,     net                                     10       --       51        8    Proceeds from insurance recoveries     for loss of drilling unit              560       --      560       --    Proceeds from payments on notes     receivable                              11       --       21       --    Proceeds from short-term     investments                             --      172        5      393    Purchases of short-term investments      --     (234)      --     (234)    Joint ventures and other     investments, net                        (1)      --       (1)      --                                        -------  -------  -------  -------Net cash provided by (used in) investing activities                       280   (1,009)     (43)  (1,488)                                        -------  -------  -------  -------Cash flows from financing activities    Change in short-term borrowings,     net                                    (46)    (476)    (177)    (500)    Proceeds from debt                       --      231       54      319    Repayments of debt                      (22)    (708)    (275)  (1,410)    Payments for warrant exercises, net      --      (13)      --      (13)    Purchases of shares held in     treasury                              (180)      --     (240)      --    Proceeds from (taxes paid for)     share-based compensation plans,     net                                      3        5       (1)      22    Excess tax benefit from share-based     compensation plans                       1       --        1        1    Other, net                               (3)      (1)      (2)      (4)                                        -------  -------  -------  -------Net cash used in financing activities      (247)    (962)    (640)  (1,585)                                        -------  -------  -------  -------Net increase (decrease) in cash and cash equivalents                         1,302     (395)   1,758      (56)Cash and cash equivalents at beginning of period                                1,586    1,302    1,130      963                                        -------  -------  -------  -------Cash and cash equivalents at end of period                                 $ 2,888  $   907  $ 2,888  $   907                                        =======  =======  =======  =======                                 TRANSOCEAN LTD.                           FLEET OPERATING STATISTICS                                Operating Revenues ($ Millions) (1)                          ------------------------------------------------                               Three months ended        Six months ended                          ----------------------------  ------------------                          June 30,    March   June 30,  June 30,  June 30,                            2010    31, 2010    2009      2010      2009                          --------  --------  --------  --------  --------Contract Drilling Revenues  High-Specification   Floaters:    Ultra Deepwater     Floaters             $    809  $    901  $    673  $  1,710  $  1,375    Deepwater Floaters         382       390       406       772       819    Harsh Environment     Floaters                  166       176       159       342       317  Total   High-Specification   Floaters                  1,357     1,467     1,238     2,824     2,511  Midwater Floaters            521       522       644     1,044     1,352  High-Specification   Jackups                      93        94       128       186       278  Standard Jackups             312       352       608       664     1,298  Other Rigs                     7         6         7        13        20Subtotal                     2,290     2,441     2,625     4,731     5,459Contract Intangible Revenue                        29        33        75        62       179Other Revenues  Client Reimbursable   Revenues                     38        40        48        78        98  Integrated Services and   Other                        11        30        52        42       105  Drilling Management   Services                    129        51        74       179       145  Oil and Gas Properties         8         7         8        15        14Subtotal                       186       128       182       314       362Total Company             $  2,505  $  2,602  $  2,882  $  5,107  $  6,000                                    Average Daily Revenue  (1)                          ------------------------------------------------                               Three months ended       Six months ended                          ----------------------------  ------------------                          June 30,    March   June 30,  June 30,  June 30,                            2010    31, 2010    2009      2010      2009                          --------  --------  --------  --------  --------  High-Specification   Floaters:    Ultra Deepwater     Floaters             $482,100  $486,000  $450,500  $484,100  $450,800    Deepwater Floaters    $395,800  $383,800  $339,600  $389,600  $338,200    Harsh Environment     Floaters             $428,500  $400,100  $374,500  $413,400  $362,500  Total   High-Specification   Floaters               $447,800  $443,200  $397,600  $445,400  $395,700  Midwater Floaters       $319,000  $331,600  $302,700  $325,200  $308,900  High-Specification   Jackups                $146,100  $166,000  $161,400  $155,500  $165,700  Standard Jackups        $117,100  $133,100  $149,200  $125,000  $152,900  Other Rigs              $ 72,000  $ 72,700  $ 48,300  $ 72,400  $ 47,300Total Drilling Fleet      $284,200  $298,300  $255,900  $291,300  $256,200                                          Utilization (1)                          ------------------------------------------------                               Three months ended       Six months ended                          ----------------------------  ------------------                          June 30,    March   June 30,  June 30,  June 30,                            2010    31, 2010    2009      2010      2009                          --------  --------  --------  --------  --------  High-Specification   Floaters:    Ultra Deepwater     Floaters                   76%       88%       91%       82%       94%    Deepwater Floaters          66%       71%       82%       68%       84%    Harsh Environment     Floaters                   85%       98%       93%       91%       96%  Total   High-Specification   Floaters                     74%       83%       88%       78%       90%  Midwater Floaters             69%       67%       84%       68%       86%  High-Specification   Jackups                      70%       63%       87%       66%       93%  Standard Jackups              53%       53%       82%       53%       85%  Other Rigs                    50%       50%       59%       50%       80%Total Drilling Fleet            64%       66%       84%       65%       87%(1)  Average daily revenue is defined as contract drilling revenue earned     per revenue earning day in the period.  A revenue earning day is     defined as a day for which a rig earns dayrate after commencement of     operations.  Utilization is defined as the total actual number of     revenue earning days in the period as a percentage of the total     number of calendar days in the period for all drilling rigs in our     fleet.                      Transocean Ltd. and Subsidiaries                 Supplemental Effective Tax Rate Analysis                              (In millions)                                   Three months ended     Six months ended                               -------------------------  ----------------                                 June    March     June     June     June                                  30,      31,      30,      30,      30,                                 2010     2010     2009     2010     2009                               -------  -------  -------  -------  -------Income before income taxes     $   818  $   814  $   992  $ 1,632  $ 2,182 Add back (subtract):    Litigation matters              12        -        -       12        -    Gain on loss of Deepwater     Horizon                      (267)       -        -     (267)       -    Loss on disposal of other     assets, net                     -       14        3       14        3    Loss on impairment of     goodwill and intangible     assets                          -        2        9        2        9    Loss on impairment of     other assets                    -       21        -       21        -    Loss on impairment of     assets held for sale            -        -       58        -      279    (Gain) loss on retirement     of debt                         -       (2)       8       (2)      10    GSF merger related costs     and other, net                  -        6        2        6        8                               -------  -------  -------  -------  -------Adjusted income before income taxes                             563      855    1,072    1,418    2,491Income tax expense                  98      129      184      227      435 Add back (subtract):    Loss on impairment of oil     and gas properties             (7)       7        -        -        -    GSF merger related costs         -        1        -        1        1    Tax effect of the Patient     Protection and Affordable     Care Act                        -       (2)       -       (2)       -    Changes in estimates (1)         1       (7)     (16)      (6)     (52)                               -------  -------  -------  -------  -------Adjusted income tax expense (2)                           $    92  $   128  $   168  $   220  $   384                               =======  =======  =======  =======  =======Effective Tax Rate (3)            12.0%    15.8%    18.5%    13.9%    19.9%Annual Effective Tax Rate (4)     16.3%    15.0%    15.7%    15.5%    15.4%(1) Our estimates change as we file tax returns, settle disputes with tax    authorities or become aware of other events and include changes in (a)    deferred taxes, (b) valuation allowances on deferred taxes and (c)    other tax liabilities.(2) The three months ended June 30, 2010 includes $4 million of additional    tax expense (benefit) reflecting the catch-up effect of an increase    (decrease) in the annual effective tax rate from the previous quarter    estimate.(3) Effective Tax Rate is income tax expense divided by income before    income taxes.(4) Annual Effective Tax Rate is income tax expense excluding various    discrete items (such as changes in estimates and tax on items excluded    from income before income taxes) divided by income before income    taxes excluding gains and losses on sales and similar items pursuant    to the accounting standards for income taxes and estimating the annual    effective tax rate.

SOURCE: Transocean Ltd.